Debt a concern in fibre roll-out

Fairfax Media

INDEBTED: Power companies say it will be a challenge for them to raise debt finance for any fibre build-out under the Government's broadband plan.

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Regional power companies say it will be a challenge for them to raise debt finance for any fibre build-out in their areas under the Government's $1.5 billion broadband plan.

The Government is proposing a Crown fibre-investment company (CFIC) that will invest, along with private-sector companies, in regional local fibre companies (LFC) to build out a faster fibre broadband network to 75 per cent of the population.

Telco analysts say the Cabinet paper favours utility companies, at the expense of Telecom.

But the newly-formed Regional Fibre Group, made up of 10 regional power companies, says in a submission to Government that the debt finance business model is risky given the inability for LFCs to drive customer uptake, the market dominance of the telco incumbents and the risk of future regulation. The Government has also not guaranteed a rate of return for the LFCs.

The power companies want the Government's funding options to be left ''flexible to leverage the maximum from government funds'' to satisfy the LFCs private investors' need for greater return.

Network Tasman, which has commissioned over 360 kilometres of fibre cable, says in its submission to Government that equity financing may be an option. But private investors share the concerns of debt financiers: that there is considerable risk in the early years that LFCs may prove unviable due to low volumes, it says.

It suggests regulation providing a cap and floor for LFCs. Above the cap, returns would be shared with the CFIC; below the floor, support is provided by the CFIC. Such an approach is common in other regulated industries in New Zealand and long-term infrastructure projects globally, says Network Tasman.

Meanwhile Business New Zealand has asked the Government to take more factors into account than just the general population when determining the regions to be covered by the fibre fund.

The Government wants the fund to go to 75 per cent of the population and has picked 25 regions based on the ranking of the largest cities and towns at the 2006 census.

But there are other regions which show greater potential for customer buy-in of a fibre broadband service which aren't included in the proposal, says Business New Zealand.

For example, Queenstown and Wanaka are left out because of their small population, but both are major tourist destinations.

Tourism service operator Venture Southland say only Invercargill will qualify for inclusion in any Government fibre roll-out in Southland, amounting to just 52 per cent of the province's population.